It’s been an interesting couple of days for Bitcoin. The flagship cryptocurrency broke another all-time-high record a couple of days, but has since dropped by over 20%, getting under $52,000 on Thursday. Its price has rebounded since and, at the moment of writing, BTC is hovering over $53,000.
However, experts warn we might see the price dropping under 50k this night if the so-called “Bitcoin Max Pain” happens once the $5.5 billion worth of bitcoin options expires.
Drawing from past experiences, crypto analysts think the actions in the Bitcoin options markets could dictate the price trend in the following period.
How do Bitcoin Options Work?
By definition, options are contracts set to buy/sell an asset at a specific price. In the case of Bitcoin, an example of an options contract would be to buy BTC at $50,000 or under. Another example would be to sell BTC at the price of over $60,000.
In Bitcoin trading, the options contracts expire on the last Friday of the month at 4:00 pm London time. The “Last Day of Trading” in March 2021 is today. What makes this day special from, let’s say, the Last Day of Trading in February is that there are more than 100,000 BTC of options set to expire, which is the all-time record.
The expiring Bitcoin options are worth more than $5.5 billion, which is significantly more than the current record of $4 billion set on January 31.
Are We Going to Witness “Bitcoin Max Pain” Tonight?
Given the fact that we saw Bitcoin price dropping by 11% this week, while its price has gone down by 20% since BTC reached it’s all-time high in mid-March, experts warn the downward trend might continue.
According to some cryptocurrency experts such as Sumit Gupta, the founder of CoinDCX, Bitcoin could plunge to as low as $44,000. And it could happen this evening!
“We are reaching a juncture that is referred to as “max pain” when a record $6 billion of options contracts are set to expire… We expect it to be sticking around $44,000-45,000 zone.”
Other analysts, however, are a bit more optimistic about the BTC price. Many of them don’t see a major crash happening tonight, but everyone agrees that there’s a potential for a big correction post-expiry.
What After $6 Billion Worth of BTC Options Expire?
Even if Bitcoin Max Pain happens tonight or over the weekend, the price is expected to recover within a couple of days. For Siddharth Menon from WazirX, the most likely scenario is that the price will consolidate around the $50,000 mark, regardless of how big the dip might be this weekend.
However, he believes that a bearish trend is going to continue throughout April. If we take a look at the 2017 Bitcoin bullish run, it’s evident that after reaching a high, BTC tends to enter a downward trend.
In 2017, the trend resulted in a 50% price correction. This time, however, it probably isn’t going to go much above 30%, given the fact that there’s plenty of institutional participation in 2021.
According to Menon, the price of $50,000 seems like a fantastic buying opportunity. He expects BTC to stay in that ballpark in April before going into a bullish trend once again in May, when it could break the all-time record once again.